5 Unit MultiFamily Analysis - First Investment

[Michael Morton]

I'm looking at my first rental property.  This is in an working-class town 60 minutes west of Boston.  It's in good shape, doesn't need much work at all - maybe some minor stuff.  Long-term tenants occupy most units (10+ years!) so rents are on the low side by $100 / unit or so - but not much hassle from tenants

Price: $375,000 

5 Units.  Gross Monthly Income of $4100

2 Garages.  Gross Monthly Income of $1200

Expenses (Yearly):

Utilities: Gas ($800), Insurance ($3k), Elec ($3k), Water ($5k), Oil ($6k), Taxes ($5k)

Other: Vacancy ($1200 / 2%), CapEx ($3k), Snow/Lawn ($1800), Repairs ($2400), Garbage ($600), Management ($3500), P&I: $18k (30% Downpayment)

Yearly Income vs Expenses: $64k - 54k = $10k

Cash on Cash = 7.5% (10k on 120k)

My questions/comments are:

* Do those numbers look "reasonable" and am I missing anything big?  I've gone through the BP Analysis Tool.

* This seems OK, not great.  The big "killer" seems to be the utilities are very high.

* I'm interested in exploring splitting the utilities out to the tenants somehow.  It's an older multi-family so it's pretty complicated (I would think) to do that.  

* The ROI goes up quite a bit if I can raise the rents to be more inline with the area. $100 / unit x 5 units changes that to about 12% return.

* For what it's worth, the 50% rule shows $1500 / month cashflow, but actuals (above) show $800.  I think it's the expensive utilities.  Or maybe I'm overestimating the other costs.

Any feedback REALLY appreciated!

Thanks, Mike

[Logan Hassinger]

@Michael Morton

First off I see that your debt service is much too low at 18k/annual. It appears that you have estimated this pmt of $1,500 on a 30 year term. That is very unlikely, 20 year notes are most common on commercial financing. Also the rate is going to be somewhere between 5-6%.  With 30% down and terms of 240 and 5.5%, you're looking at a pmt of $1,800/month. 

Additionally, for the current rents, I would say this building is over priced by about 100k. Even with increased rents like you say of 920/unit/month, I would like to see you get this property more around 310k. 

You also state that this is an "ok deal", why would you want that?  

If the figures you have for utilities were provided by the seller and not a shot in dark, then you're right, the utilities are killing this deal. 

I say move on and look for spectacular deals, not ones where you are barely getting by. 

Check some of @Ben Leybovich posts regarding cap-ex.

https://www.biggerpockets.com/renewsblog/2015/03/0...